Halftime Exclusive: Icahn's Unprecedented CIT Strategy

On Tuesday he made an unprecedented offer to CIT’s small bondholders – essentially offering to limit their losses – if they vote with him, and against the company’s current plans to restructure their debt.

Although CIT’s bankruptcy plan is complicated, as one of the company's largest bondholders, Icahn takes issue with one very big provision. “I don’t want to see the company go back into the hands of the guys that got us here in the first place,” he tells Fast Money.

“The management and the board have lost $2.8 billion. And while that happened they paid the top 6 managers something like $20 million.”

In other words, he wants the current management out – and the way the bankruptcy is structured right now – that's not likely to happen.

That probably comes as little surprise. As every Fast Money viewer knows, Icahn has little patience for anyone in senior management of any company who pays themselves in a big way when the company’s owners and debt holders – the shareholders and bond holders – lose money.

Fast Money Halftime Report

The Fast Money traders weigh in on the markets and share their midday trading advice.

So, what’s his offer.

Essentially Icahn is offering to limit the losses of current bondholders – to about 60 cents on the dollar. Think of it as put protection that the Pit Boss always talks about.

“What I’m saying is vote against the plan and you can’t get less than 60 (cents on the dollar) If the bonds stay good you can keep them or if they go bad you can tender them to me,” Icahn explains.

Confused? Here’s another way of saying it.

If you’re a bondholder and you go with Icahn’s plan the worst that could happen is – for the next 30 days -- you end up with 60 cents on the dollar. Or if the situation improves considerably for CIT – you just keep your bonds.

Seems reasonable – so why all the hoopla?

”The company scared the hell out of shareholders by saying that if it goes into what they call freefall bankruptcy and what I call regular bankruptcy the bonds are going to go way down. As low as 6 cents on the dollar,” Icahn says.

“If you’re nervous and scared we’ll protect you for 30 days. It’s really a free put for the small investor.”

Why is Icahn doing this?

Because he thinks in a worst case scenario regular bankruptcy will benefit bondholders more than the current plan from CIT that's on the table.

In a worst case scenario, ”I want to see CIT go through traditional bankruptcy and run off the assets traditionally. I believe they will get (85 cents on the dollar.)

Icahn on Yahoo!

And we couldn’t talk with Carl and not ask him about his recent decision to resign from the board of directors at Yahoo! .

Although he wouldn’t say much he did tell us, "The deal with Microsoft was a great deal. And I think we have a great CEO in Carol Bartz so I don’t think we need an activist (like me) in there."

______________________________________________________Got something to to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment but not have it published on our website send those e-mails to fastmoney@cnbc.com.

For Jamie Baker:JP Morgan Owns (UAUA) JP Morgan Has An Investment Banking Relationship With (UAUA) JP Morgan Has An Investment Banking Relationship With (CAL) JP Morgan Has An Investment Banking Relationship With (AMR)

For Paul Sankey:Deutsche Bank Owns (VLO) (VLO) Is an Investment Banking Client of Deutsche Bank Deutsche Bank Has Received Compensation From (VLO) (VLO) Has Been A Client Of Deutsche Bank In Past Year

Deutsche Bank Owns (HES) (HES) Is an Investment Banking Client of Deutsche Bank Deutsche Bank Has Received Compensation From (HES) (HES) Has Been A Client Of Deutsche Bank In Past Year Deutsche Bank Owns (BP) (BP) Is an Investment Banking Client of Deutsche Bank Deutsche Bank Has Received Compensation From (BP) (BP) Has Been A Client Of Deutsche Bank In Past Year Deutsche Bank Owns (OXY) (OXY) Is an Investment Banking Client of Deutsche Bank Deutsche Bank Has Received Compensation From (OXY) (OXY) Has Been A Client Of Deutsche Bank In Past Year (SUN) Is an Investment Banking Client of Deutsche Bank Deutsche Bank Has Received Compensation From (SUN) Deutsche Bank Owns (PDE) (PDE) Is an Investment Banking Client of Deutsche Bank Deutsche Bank Owns (COP) (COP) Is an Investment Banking Client of Deutsche Bank Deutsche Bank Has Received Compensation From (COP) (COP) Has Been A Client Of Deutsche Bank In Past Year Deutsche Bank Owns (CVX)Deutsche Bank Has Received Compensation From (CVX) (CVX) Is an Investment Banking Client of Deutsche Bank Deutsche Bank Owns (XOM) Deutsche Bank Has Received Compensation From (XOM) (XOM) Is an Investment Banking Client of Deutsche Bank